Canada West Foundation Blog

The latest research conducted by the Canada West Foundation shows that a small locally-levied sales tax, dedicated to municipal infrastructure and implemented only if voters agree in a referendum, would help western Canadian cities close the gap between their huge infrastructure needs and the funding dollars available.

The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments by Casey Vander Ploeg, Senior Policy Analyst, measures the projected infrastructure needs facing western Canadian seven biggest cities over the next ten years at over $40 billion.

“Our work shows that a small voter-approved penny tax, combined with regular and comprehensive reporting by governments, could be the most visible, transparent and accountable tax in Canada,” author Casey Vander Ploeg explains. “It has so many benefits to recommend it. One that is very important is how the tax would ensure that all individuals coming into a city and use the infrastructure also help pay for it.”

The penny tax would be a tax unlike any other in Canada because of the unique features built into the tax. Such features include a capped rate so the tax cannot be raised, voter-approval for implementing the tax, and dedicating all revenue to specific municipal infrastructure projects that would also be subject to voter-approval.

“The features I like the most in our proposal is the automatic sunset and the refund of excess revenue back to taxpayers,” said Vander Ploeg. The penny tax could only be used across two municipal election cycles, after which the tax would lapse. For the tax to be used any longer than six years, voters would have to vote the tax back in along with a new set of infrastructure projects. A sales tax can also produce revenues that exceed expectations. This tax revenue could be returned to local taxpayers.

While there are challenges that require further exploration before a penny tax could be implemented, it is clear that this innovative tax option would do much to maintain, renew, and rehabilitate existing infrastructure, as well as invest in new infrastructure. Across the globe, local governments are implementing such innovation tax solutions.

This report is part of the Canada West Foundation’s Smart Financing Project, which focuses on innovative solutions to Canadian public financing challenges.

To download The Penny Tax: A Timely Tax Innovation to Boost our Civic Investments, click here.

by Robert Roach

There are many ways to ruin a cocktail party. One tried and true way is to bring up the environment: “Are you aware that the pork in that pig-in-a-blanket you are eating creates toxic run-off that contaminates our rivers?” “No, but it sure is tasty!”
This is why we did not start this series of articles on changing Canada’s economic DNA with a piece on the importance of thinking and acting green. However, while it may be a buzz kill, addressing the environmental piece of the economic competitiveness puzzle is critically important.

This is especially true because we are nowhere near where we need to be when it comes to environmental efficiency (see what we mean—what a buzz kill). We have an economy that is really good at exploiting the environment and we are trying to stick this square peg into a round environmental hole. There has been progress: recycling has become commonplace, dumping industrial waste directly into rivers  has been banned, and we have greatly reduced the use of ozone-depleting hairspray. Despite these and other minor adaptations, our basic economic DNA is black and red (as in black and red ink) rather than green.

The point here to not to be ashamed of what we have accomplished as a civilization. The modern economy and its roots in transforming the land and harvesting the earth’s resources have taken us out of the stone age. For most of us, at least, this is a good thing.

Nonetheless, we don’t want to become an economic dinosaur staring into a future where we are just a bunch of bones in a museum. We have to move beyond tinkering at the margins of how our economy operates and embrace a completely different approach to how we weld our economy with the short-, medium- and long-term health of the planet.

The first thing we have to admit is that this will not be easy and it will not come without short-term costs. It will pay off, but like anything worth having, it requires sacrifice. There will be winners and losers, and the losers are not going to be happy. If we plan for this rather than think that the transition to a green future will be painless, our chances of success will be much greater.

The second thing we need to understand is that one-off reactions to the crisis of the day—be it greenhouse gases, oil spills, birds getting chewed up in wind turbines, or the disappearing rainforest (remember when we cared about that?)—will not get the job done. It is like training a duck not to quack—you might have some success, but it would be better to change the duck’s genetic code so it has no need to quack.

As an economy, we need to change the basic equation of exploiting land, labour and capital to a much more complex algorithm that incorporates the value of ecological goods and services, establishes the primacy of creativity and innovation, and erases the notion that “protecting” the environment is either a cost or a moral obligation. Sustainable practices must be as natural as breathing. If they are only the result of laws, guilt or religious fervour, they will always be on shaky ground and open to fierce opposition

We need business practices, investment strategies, production systems, accounting methods, entrepreneurial norms and market signals that integrate both the efficiencies that can be gained from green economics and its respect for the natural processes that sustain life.

A change of this magnitude is a massive undertaking, and for this reason alone it cannot be centrally controlled. It has to happen at the level of the individual firm, investor, entrepreneur, worker, parent and teacher.

Two things make this transformation increasingly likely: first, there are many potential advantages to a greener economy including lower production costs and higher profits; new jobs in the green services sector; a decrease in onerous government regulation and the related compliance costs; and less money spent on reacting to environmental challenges (thus leaving more money in the hands of consumers).

Second, we know more today that we used to. Some will say that we have only rediscovered what some ancient cultures already knew, but either way, the next generation of Canadian entrepreneurs, investors, managers and workers are much more savvy about the need for, and value of, greater balance between harvesting the earth’s bounty and ensuring that it continues to be bountiful.

Canada can take the lead. Or, we can become the dinosaur as Germany, the US, and yes, even China, push us out of the way.

This article is based on a forthcoming book entitled “Rewriting the Code: Changing Canada’s Economic DNA” by Todd Hirsch and Robert Roach. Robert Roach is the Senior Researcher at the Canada West Foundation and Todd Hirsch is the Senior Economist at ATB Financial.